UMBRELLA/EXCESS

"When It Rains It Pours"

Commercial umbrella policies are issued to protect the insured against potential losses where the insured would not have enough coverage on your Business Owners Policy (BOP) or other types of business coverage. When a loss occurs, the umbrella coverage plays the role of an excess coverage, and pays when the limits of the underlying policy has exhausted.

Commercial umbrella policies therefore are designed to cover only large losses, or unexpected claims that could ruin a small business. This is basically the same concept of carrying a personal umbrella policy, where your umbrella coverage cover for losses above any types of losses. Personal umbrella policies usually cover the insured as an excess coverage for their homeowners insurance, personal auto insurance, and sometimes other types of personal liability coverage. The commercial umbrella policies work in similar fashion, except that it will cover commercial risks.

Question: Does an umbrella ever become “Primary?”Answer: An umbrella policy typically provides coverage that "drops down" to respond to claims not covered by underlying insurance that are not expressly excluded in the umbrella form.

Question: Wouldn’t the underlying coverage continue to respond to claims throughout the policy year?Answer: Commercial general liability (CGL) policies contain an aggregate limit provision, meaning that once the limit is exhausted by the payment of claims, no coverage remains under the policy.

Question: Are there any special obligations as a policyholder?

Answer: The policy requires that you notify the insurance carrier in the event that any underlying insurance is canceled or not renewed - or if the underlying insurance is significantly changed. If your Board fails to do this, the carrier will not be responsible for more than it would have been responsible for if the underlying insurance had not lapsed or been or changed. As a result, you may have a situation where the Association is responsible for making up the difference between what you should have carried and what you actually maintained.

Question: Is there a deductible?Answer: The commercial umbrella policy contains a deductible provision called a “retained limit.” If a commercial umbrella becomes “primary” (for a coverage not provided on the underlying coverage, but for which the umbrella coverage applies) the retained limit applies. Typically, the retained limit is $10,000. The retained limit would not apply if the full limits of the underlying coverage is in force for the loss covered.

Question: My broker is telling me that it’s best to have the umbrella policy “aligned” with the underlying general liability policy. Is this true?Answer: Yes. It’s generally considered preferred to have “concurrent” expiration dates on the underlying coverage and the umbrella.

Question:What about the quality of the underlying coverage?

Answer: Some commercial umbrella carriers may only be willing to write coverage over primary carriers with a rating of “A” or better from A. M. Best rating service. This means that if you have underlying general liability coverage from a “B” rated carrier, some umbrella carriers may refuse to be excess of that coverage.